May 24, 2023

Japan Enforces Strict Crypto Regulations from June 1

The Japanese Parliament has taken a major step forward in regulating the cryptocurrency sector, introducing stricter Anti-Money Laundering (AML) measures set to come into effect from June 1.

The move is being made in order to bring Japan’s legal framework in line with global crypto regulations, and follows a revision of the AML legislation in December that was deemed insufficient by the Financial Action Task Force (FATF).

At the heart of the new measures is the enforcement of the “Travel Rule”, which will require any financial institution processing a crypto transfer of more than $3,000 to pass on customer information to the recipient exchange or institution. This data must include the name and address of the sender and recipient, as well as account information.

The Travel Rule was discussed by global leaders at the G7 meeting in Japan in mid-May, with the G7 Committee expressing its support for the Travel Rule for crypto transactions, as well as FATF initiatives on emerging risks, including from DeFi arrangements and peer-to-peer transactions.

Japan has been an early adopter of cryptocurrencies, legalising it as property, and its financial regulator, the Financial Services Agency, has tightened rules on crypto exchanges following the major hacks of the exchanges Mt.Gox and Coincheck.

Exchanges must hold at least 95% of customer funds in cold wallets, and investors cannot borrow more than twice their investments for leveraged trades on exchanges. In addition, separate holdings of customer and company assets must be verified in annual audits.

Recently, the Web3 project team of Japan’s ruling Liberal Democratic Party released a white paper proposing ways to expand the country’s crypto industry, including the use of Non-Fungible Tokens (NFTs) for promotion and marketing.

The paper suggests that NFTs could be used to promote businesses, products, and services, as well as to reward customers for their loyalty. It also recommends that businesses use NFTs to launch marketing campaigns on social media platforms such as Twitter, and that they consider working with a web3 agency to help them sell NFTs.

The new measures being introduced by the Japanese Parliament are a significant step towards greater regulation of the crypto sector, and could pave the way for further innovation in the web3 space.

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